UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Nos.: 33-73748
FUND AMERICA INVESTORS CORPORATION II
(Exact name of registrant as specified in its charter)
Delaware 84-1218906
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
6400 S. Fiddler's Green Circle, Suite 1200B, Englewood, Colorado 80111
(Address of principal executive offices)
Registrant's telephone number including area code: (303) 290-6025
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of November 13, 1998 -- 349,000 shares
</PAGE>
FUND AMERICA INVESTORS CORPORATION II
FORM 10-Q FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements 3
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote
of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports 10
SIGNATURES 11
Page 2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FUND AMERICA INVESTORS CORPORATION II
BALANCE SHEETS
<CAPTION>
(Unaudited)
September 30, December 31,
1998 1997
____________ ___________
<S> <C> <C>
Assets
Cash $352,466 $110,311
Deferred offering costs 239,645 364,797
Prepaid expenses - 172
________ ________
Total assets $592,111 $475,280
======== ========
Liabilities - accounts payable $ 10,240 $ 8,801
________ ________
Shareholder's equity
Common stock, par value $.01 per share;
10,000 shares authorized; 349,000
shares issued and outstanding 3,490 3,490
Retained earnings 578,381 462,989
________ ________
Total shareholder's equity 581,871 466,479
________ ________
Total liabilities and
shareholder's equity $592,111 $475,280
======== ========
See notes to financial statements
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<TABLE>
FUND AMERICA INVESTORS CORPORATION II
Statement of Operations
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
__________________ _________________
1998 1997 1998 1997
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Revenue
Issuance fee income $ - $125,995 $360,418 $125,995
Interest income 4,464 1,490 7,556 4,629
________ ________ ________ ________
Total revenue 4,464 127,485 367,974 130,624
________ ________ ________ ________
Expenses
Deferred offering
costs - 50,995 135,418 50,995
General and
administrative 2,308 1,543 11,566 10,130
Amortization of
organization costs - 159 - 477
Management fees 6,000 6,000 18,000 18,000
________ ________ ________ ________
Total expenses 8,308 58,697 164,984 79,602
________ ________ ________ ________
Net income/(loss) $ (3,844) $ 68,788 $202,990 $ 51,022
======== ======== ======== ========
See notes to financial statements
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<TABLE>
FUND AMERICA INVESTORS CORPORATION II
Statement of Cash Flows
(Unaudited)
<CAPTION>
Nine months ended
September 30,
___________________
1998 1997
______ ______
<S> <C> <C>
Net cash flow from operating activities:
Net income $202,990 $ 51,022
Adjustments to reconcile net income
to net cash flow from operating
activities:
Amortization of organizational
costs - 477
Deferred offering costs 135,418 50,995
Changes in operating assets and
liabilities:
Prepaid expenses 172 163
Accounts payable 1,439 10
________ ________
Net cash flow provided by operating
activities 340,019 102,667
Net cash used in investing activities:
Increase in deferred offering costs ( 10,266) ( 303)
________ ________
Net cash flow used in investing
activities ( 10,266) ( 303)
Net cash used in financing activities:
Shareholder distributions ( 87,598) -
________ ________
Net cash flow used in financing
activities ( 87,598) -
________ ________
Net increase in cash 242,155 102,364
Cash at beginning of period 110,311 190,574
________ ________
Cash at end of period $352,466 $292,938
======== ========
See notes to financial statements
</TABLE>
Page 5
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FUND AMERICA INVESTIORS CORPORATION II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Nine months ended September 30, 1998 and 1997
1. Basis of Presentation
Organization
------------
Fund America Investors Corporation II (the "Company") was incorporated in
the State of Delaware on December 14, 1992 as a limited purpose finance
corporation. The Company was established to engage in the issuance and
administration of Collateralized Mortgage Obligations (the "Bonds") and
Asset-Backed Certificates (the "Certificates", and together with the
Bonds, the "Securities"). The Securities are issuable in one or more
series, from time to time, by the Company in accordance with the
provisions in the prospectus and series-related prospectus supplement of
the Company's latest effective registration statement.
The Securities of each series can be issued by the Company, but typically
the Company forms a separate trust to act as the issuer solely for the
purpose of issuing one series. Series of Securities which include Bonds
will be issued pursuant to an indenture and will represent indebtedness
of the trust or issuer. Series of Securities which include Certificates
will represent beneficial ownership in the related trust or issuer. The
sole source of payments to Bondholders or Certificateholders within
each series of Securities are produced from the related trust property.
The property or assets within each trust are comprised of
mortgage-related assets as defined in each of the series' related
prospectus supplements.
The Company may not, either directly or indirectly through a beneficially
owned trust, engage in any business or investment activity other than (1)
issuing and selling the Securities; (2) purchasing, owning, holding,
pledging or selling the Collateral or other mortgage-related assets; (3)
investing and maintaining cash balances on an interim basis in high
quality short-term securities; and (4) engaging in other activities which
are necessary or convenient to accomplish the foregoing and are
incidental thereto.
Issuance of Securities
----------------------
The Company did not issue any Securities during the third quarter ended
September 30, 1998. The total Securities issued year-to-date remained at
$348 million. These Securities were issued under the Company's combined
Registration Statement No. 333-33823 in three separate series and were
issued pursuant to separate prospectus supplements, listed below.
Prospectus Supplement Information
Amount Type of
Date Issuer/Series of Offering Securities
______ ____________________________ ___________ __________
04-28-98 Fund America Investors Corp. II/
Pass-Through Certificates,
Series 1998-A $ 60,373,853 Certificates
06-24-98 Fund America Investors Trust
1998-NMC1/ Collateralized
Mortgage Obligations,
Series 1998-NMC1 $236,526,000 Bonds
06-28-98 Fund America Investors Corp. II/
Pass-Through Certificates,
Series 1998-B $ 50,703,106 Certificates
Page 6
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The Certificates in both Series 1998-A and Series 1998-B represent the
entire beneficial ownership in trusts specifically formed for each
series. Each trust holds underlying securities which are the sole source
of distribution payments to the certificateholders. These Certificates
do not represent an interest in or obligation of the Issuer or the
Company.
The Bonds in Series 1998-NMC1 represent non-recourse obligations of the
Issuer, Fund America Investors Trust 1998-NMC1 (the "Trust"), and do not
represent interests in or obligations of the Company. The assets that
were pledged to the Trust are the sole source of payments on the Bonds.
The pledged assets consist of adjustable rate, fully amortized mortgage
loans that are secured by residential properties.
The mortgage loans in Series 1998-NMC1 were originated or acquired by
National Mortgage Corporation ("NMC"), an affiliate of the Company. In
addition to NMC's participation as the seller of these mortgage loans,
NMC is servicing the mortgage loans and is the holder of the residual
interest that represents all of the beneficial ownership interest in Fund
America Investors Trust 1998-NMC1.
Activity on Registration of Securities
--------------------------------------
On September 30, 1998, the Company submitted its fifth Registration
Statement on Form S-3 to the Securities and Exchange Commission. The
purpose of this new Registration Statement is to register an additional
amount of Securities and to merge the Company's Effective Registration
Statement No. 333-33823, which will increase the total amount of
Securities that can be issued by the Company. As of September 30, 1998,
this new Registration Statement was not effective and was subject to
completion or amendment.
2. Unaudited Financial Statements
------------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
reporting periods and in accordance with the instructions to Form 10-Q.
Therefore, in complying with these guidelines, these financial statements
do no include all of the information and footnotes that are required for
the year-end or annual reporting period.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normally recurring
accruals) necessary to present fairly the financial position of the
Company at September 30, 1998, and the results of its operations and
cash flows for the periods ended September 30, 1998 and 1997. Operating
results for the nine month period ended September 30, 1998, or for the
quarter ended September 30, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
3. Market Risk Disclosure Not applicable.
----------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Year 2000 Issue
---------------
The Company recognizes the Year 2000 ("Y2K") issue as a highly sensitive
and important matter. The Company's goal is to continue to provide
uninterrupted service as business enters into the next millennium.
The Y2K issue addresses potential problems that may be encountered with
date-related transactions on systems that have historically recognized
years using two digits versus four digits. For example, these systems
will potentially recognize "00" as the year 1900 instead of 2000. On the
surface, the Y2K issue may seem to be a simple problem, however, the
implications may be far reaching and could impact a full range of
business services and activities.
Page 7
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<PAGE>
The Company is taking a systematic approach to addressing its own Y2K
compliance issues by using the following three-step remediation process:
1. Diagnostic phase
a. Recognition and acknowledgment of the problem
b. Inventory all business systems
c. Inspect and assess systems
2. Planning phase
a. Categorize problems by critical and non-critical systems
b. Prioritize
c. Define solutions for remediation
3. Execute remediation solutions
a. Implement defined solutions
b. Define testing procedures
b. Test and verify systems
The Company in conjunction with its facilities service provider, The
Chotin Group Corporation, a related party by common control, is
identifying and is assessing its internal systems that are subject to Y2K
risk. Additionally as part of the Company's compliance efforts,
significant third parties' Y2K preparedness is being confirmed.
The Company believes that it is taking all necessary and reasonable steps
to get its systems and operations Y2K compliant. As the Year 2000
approaches, previously unidentified problems may surface. The Company
recognizes that it can not prepare for unknown problems but will make
every reasonable effort to minimize these problems should they occur.
Without a complete assessment and testing of systems that could be
vulnerable to problems, the Company does not have reasonable basis to
conclude that the Year 2000 compliance issue will not likely have an
operational impact on the Company. In addition, without a reasonable
conclusive basis, reported financial information will not necessarily be
a indication of future operating results or future financial condition.
However, due to the fact that most systems are out-sourced to third
parties, the Company does not expect to incur any direct cost that would
affect its financial condition.
Financial Condition and Liquidity
---------------------------------
The Company expects to fund its ongoing operations from its cash balances
and additional revenues generated from the issuance of Securities. As of
September 30, 1998, the Company's cash position increased by $242,155
from its position of $110,311 at December 31, 1997. The increase is
attributable to revenues earned from the issuance of Securities during
the second quarter of 1998.
In the event that additional capital resources may be required, the
Company maintains an open line of credit for $1,000,000 with its sole
shareholder. The line of credit was established on April 3, 1995, and
the borrowing provisions under the initial agreement have continued in
each subsequent year. As of September 30, 1998, the available balance
was $1,000,000. Any balance due will be subordinate and junior to any
issued Securities.
Results of Operations
---------------------
Fluctuations in net income between periods are generally the result of
fees earned from the issuance of Securities. General and
administrative costs are typically fixed from period to period with only
slight variances. Periods reporting net income are a direct result of
income earned from issuance activity. Conversely, in periods which no
issuance fees have been earned, net losses are attributed to fixed
general and administrative costs for that period.
For the three months ended September 30, 1998, the Company reported a net
loss of $3,844 compared to a net income of $68,788 for the three months
ended September 30, 1997 The issuance fees that were earned during third
quarter in 1997 is the primary difference between the two reporting
periods.
Page 8
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For the nine months ended September 30, 1998, the Company reported a net
income of $202,990 compared to a net income of $51,022 reported for the
nine months ended September 30, 1997. The primary difference between the
two reporting periods is due to the fees earned on the issuance of three
series of Securities in 1998 versus only one series in 1997.
Forward Looking Statements
--------------------------
The statements contained in this Item 2 that are not historical facts,
including, but not limited to, statements that can be identified by the
use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology, are forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995, and involve a number of risks and uncertainties. The actual
results of the future events described in such forward-looking statements
could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: the Y2K preparedness of the Company's third party
information service providers, the market for mortgage-backed securities,
competition, government regulation and possible future litigation.
Page 9
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Form 8-K
- Form 8-K filed on July 14, 1998 submitted the
Underwriting Agreement and the Pooling and Servicing
Agreement as exhibits to the prospectus supplement on
Fund America Investors II/Pass-Through Certificates,
Series 1998-B
- Form 8-K filed on July 14, 1998 submitted the
Underwriting Agreement, the Pooling and
Servicing Agreement, the Deposit Trust Agreement, and the
Servicing Agreement as exhibits to the prospectus
supplement for Fund America Investors Trust
1998-NMC1/Collateralized Mortgage Obligations,
Series 1998-NMC1.<PAGE>
Page 10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FUND AMERICA INVESTORS CORPORATION II
-------------------------------------
(Registrant)
Date: November 13, 1998 By: /s/ Helen M. Dickens
--------------------- ---------------------------------
Helen M. Dickens
Vice President,
Secretary/Treasurer
Page 11
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 352,466
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 352,466
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 592,111
<CURRENT-LIABILITIES> 10,240
<BONDS> 0
0
0
<COMMON> 3,490
<OTHER-SE> 578,381
<TOTAL-LIABILITY-AND-EQUITY> 592,111
<SALES> 0
<TOTAL-REVENUES> 367,974
<CGS> 0
<TOTAL-COSTS> 164,984
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 202,990
<INCOME-TAX> 0
<INCOME-CONTINUING> 202,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,990
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>
Not presented since all shares of common stock are held by a sole
shareholder.
</FN>
</TABLE>
